Aquatic Foods' revenue falls as market growth in China slows

AIM-listed Aquatic Foods Group’s revenues were down as market growth in China slowed during the year, but the seafood processor remains positive about its long-term prospects.

For the nine months ended 30 September, revenue fell 5%, to ¥644.9m ( about £76.3m) compared to last year, while third quarter revenue improved by 5.1% compared to the first quarter and 10.6% compared to the second.

This resulted in a 26.6% decrease in profit to ¥157.9m (about £18.7m).

Despite revenue falling, sales volume edged 3% higher due to increased demand at lower average prices.

Third quarter sales volumes remained fairly flat around 5,100 tonnes.

The gross margin, which had started to decline from August 2015, has stabilised at 24.5%, although lower than 30.5% last year.

Chief executive Li Xianzhi said: "The fall in revenue and gross margins reflects the pressure imposed by the macroeconomic conditions in China. However the board is satisfied that the company remains profitable which demonstrates the strength and resilience of our business model.

The net profit margin is expected to be around 10-11%, subject to foreign exchange rates, lower than 14% in the 2015 financial year.

At the end of September, cash was about was approximately ¥432m (£51m), down from ¥417m (£49.3m).

Li added: “The group has been prudently preserving its cash to ensure that it is in the best position to sustain difficult trading periods as well as ensuring that the group is fully prepared to take advantages of this to grow when merger and acquisition opportunities present themselves.”

The company said it the in the longer term, it believes the demand for pre-processed and ready to eat products will continue to increase in China, with greater concern on food hygiene and safety.

“With a history in servicing demanding export markets, Aquatic Foods has developed a reputation for adopting the highest standards for quality, safety and sustainability”, and the company said it will leverage this to focus on the promotion of the Zhenhaitang brand, which it incurred a ¥9m cost to advertise.

Sales of fish products decreased by about 6% compared, although volume increased by 3%, due to a reduction in price to remain competitive in order to protect current market share. Gross profit margin of fish products to slipped to 23% from 29%.

Sea cucumber sales were down slightly by 2%, while volume increased by 1.4% and the gross margin fell to 30% from 39%, due to raw material input costs.

Sales of cephalopods, principally squid and cuttlefish, rose by about 3% by value and volume, but the gross profit declined to 15% from 15% due to rising costs.

Shrimp and shellfish sales value plunged about 8% and volume fell by about 4% due to pressure on prices, as gross profit margins were down to 26% from 31%.

Shares in Aquatic Foods Group were up 8.7% to 12.50p at 0826 GMT.